Should India develop her own Manufacturing Hub or reamin the Outsourced Hub for Western Economies

The Indian Economy in 1947-91

The Indian economy was primarily an agrarian economy post independence era, with a major chunk of its GDP coming from Agriculture sector and least coming from the services industry. With the LPG policy coming into effect in 1991, the Indian economy was made an open economy, unlike the era 1947-91. This resulted in the growth of services sector which emerged as the major shareholder for the country’s GDP.

Reasons why India needs to develop its own Manufacturing Hub

i) Outsourced Hub – Amidst this development, not much was done for the growth of the manufacturing sector. India has basically become the outsourced hub for the western economies, where manufacturing is actually done. This has resulted in a slow growth of the industry. It is a matter of fact that the outsourcing business will not sustain for long and the Indian economy has to build its expertise in the industrial segment as well, so that it can withstand any unforeseen events happening in the future. Currently India is at the cusp of a growth phase that is likely to surpass most current projections. The growth is likely to be fueled by the internal demand, as well as an increase in demand from an increasingly capital-starved West.

ii) Imbalanced Western Economies – The developed nations of the west are in a state of shock due to the recent economic catastrophe. The economies there are facing a capital and credit scarcity, whereas the savings rate of the once profligate population is rising with every passing day. This has resulted in an imbalanced environment in these economies as there is a lack of investment.

iii) Advantages of BRIC Nations – Investment in manufacturing is likely to move towards countries with low costs which have a good internal demand and lower competitive pressures. One of the major economic regions having such economic environment is The BRIC nations. Thus it is expected that the BRIC nations will be the future bloc that will ride the next wave.

Analyzing the Different BRIC Economies & India’s Prospects

Talking about the different economies independently in the BRIC bloc, we find:

i) Brazil to be uncomfortable with forex inflows, given its manufacturing base.

ii) Russia which is a basket case, investment in the economy is less likely to happen unless oil recovers to stunning heights. Also the internal demand is unlikely to resurface any time soon thus indicating that the economy again has a very little potential to attract firms to set up their operations.

iii) The Chinese economy which has shown the highest growth among the merging nations, is a very difficult partner. It is quite clear by now that China makes it very easy for the investors to get in, but it is really difficult to operate in the territory all thanks to the IPR issue. Lack of protection of hard-earned IPR is a major issue in China which results in companies staying away from the country.

iv) The Indian economy has both, a large internal market as well as the sophistication and expertise to deal with heavy industries. Easy access of funds which are freely available is again one major advantage. Support to the foreign investor indicates profitable growth in the country.

In the coming years, India should witness growth in demand and hence capacity in manufacturing. The country currently needs to develop contract manufacturing skills. India has what it takes to grow on the back of its manufacturing competence. Thus India can really be the next manufacturing hub if only she can learn and make it easy to enter, start and run a business.

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